Perhaps those of you who have been in the market for a while have heard the saying of Changpeng Zhao (CZ) - founder of Binance: "If you can't HODL, you won't be rich". If you can't HODL, you won't get rich. So what is HODL? What benefits does it bring? What are the ways to optimize profits when HODL? Let's find out in the article below.
1. What is HODL?
HODLÂ is a unique term for the cryptocurrency market, referring to investors who buy and hold that coin/token for the long term, usually in months or more.
The term comes from a 2013 Bitcointalk forum post titled âI AM HODLINGâ. While he was drunk, he posted a short article about holding Bitcoin but mistakenly wrote hold as hodl
Other forum participants accepted this misspelling and it quickly became the subject of memes. The concept of âHODLâ was also born from there. Later, HODL was also translated by many people to mean Hold On for Dear Life.
2. What is the difference between HODL and Trade?
Investors typically have one of two strategies when they enter the market:
Buy and hold (HODL)
Trade and try to increase their assets
These two strategies have some differences such as:
Profit target
Hodl will often aim for large profits, often 100% or more. Hodl will help investors not panic and cut losses when token prices fluctuate and take profits before reaching the target profit level. However, when token prices decrease and sideways (price fluctuations are small), it can discourage holders.
Trade will only take short profits in the short term. In terms of risk, trading has more potential risks for investors because of leverage tools if investors do not know how to use and manage risks.
Because of different goals, investors following the two strategies will use different tools: Hodlers often buy Spot, Traders often trade in the derivatives market.
Market perspective
Traders will often look at the market in the short term, and will also use many 1-hour (H1) and 4-hour time frames, the highest possible being the daily frame (D).
But for Holder, the lowest chart commonly used is the 4-hour frame (H4) and usually the daily frame (D). There are even some famous investors who use both weekly (W) and monthly (M) charts.
In short, both Hodl and Trade strategies have their own advantages and disadvantages. Therefore, users should combine both to maximize profits.
3. Criteria for selecting tokens for HODL
Not all tokens have the potential to be held long term. Let's look back and see what tokens still exist from 2013 up to now? Or with the top coin positions of 2 or 3 years ago, which coins still maintain their positions, or which tokens have disappeared from the market or are "out top"?
It can be seen that only Bitcoin and Ethereum still maintain the top position after many years, the remaining positions have a lot of fluctuations.
Therefore, just Hodl is not enough, you must learn, research, and "choose to deposit gold" if you want to have sustainable and safe profits.
And each person will have their own opinion when investing, depending on:
Capital: Investors with a lot of capital often choose coins/tokens with large capitalization, the profits are not high but safe, investors with little capital often want to play with coins/tokens with small capitalization to receive high profits. .
Personal analysis: Each person will have different analysis, for one person it may be a "trash" coin but for another person's analysis it becomes a "gem".
Therefore, there is no specific standard for choosing a coin/token, but what investors should do before investing is to carefully research the project to avoid risks such as scams, rug pulling, âŠ
4. How to optimize profits when Hodl Coin
Apply price averaging (DCA) strategy
You can apply a cost averaging (DCA) strategy to Hodl coins.
A few things to note when using this strategy is to only average down prices, not up prices, and always leave 10% - 20% stablecoins in case the price fakes very deeply.
For example: You have $50,000 and the current price of BTC is $25,000/BTC. Instead of buying all 5 BTC at the current price, you can apply the DCA strategy as follows:
Use 50% of the available amount of $25,000 to buy 1 BTC.
If the price of BTC drops to $15,000, you continue to use 30% of the amount to buy 1 more BTC. The average purchase price will be $20,000 instead of $25,000.
If the price continues to decrease, you can use the remaining 20% ââ(equivalent to $10,000) to buy more BTC.
The DCA strategy is a long-term strategy that helps protect yourself from market misjudgments and gain better positions.
Combination of HODL and Trade
In addition, as I said above, combining HODL and Trade can be a reasonable method to help you maximize profits in any market trend.
If you are confident in your knowledge and want to become a full-time trader, you can allocate capital as follows: 70% capital to trade and 30% capital to hold coins.
If you have knowledge about trading but don't have much free time to read charts or want to be safer, you can allocate capital 50/50.
If you are new, do not have much knowledge about the market and technical analysis, and do not have time, then holding 100% of your capital to hold coins will bring the most optimal results.
Take profits when you have reached your target profit level
It is equally important to understand that we should not HODL forever. "People who know enough are often happy." If your financial goal is close and you're already investing for that specific goal, keeping the same investment forever may not be appropriate. This also helps avoid panic and anxiety when prices drop low and move away from your target.
Another commonly used method is that when you achieve a certain level of profit, consider locking in the original amount and HODLing the rest until you reach your target. This requires extreme patience and emotional control.
5. When should HODL?
When the market fluctuates
The cryptocurrency market is unpredictable and often volatile. During a period when the market is unclear about the up or down trend, trading will be very dangerous because it can push you into a situation of "buying high and selling low" or causing you to not achieve the desired profit level.
Therefore, the HODL strategy will be especially suitable at this time to protect your investment safely. You can sell when the market has determined an uptrend with favorable conditions for the coin you are HODLing or continue to hold if the market enters a downtrend.
When you are new or not a full-time investor
Because of its simple nature, anyone, especially newbies, can HODL. HODL is also especially suitable for investors who do not have too much time to read charts or analyze in-depth technical aspects of a certain coin. So HODLing coins and taking the time to understand how the market works would be a wise move.
In addition, traditional investors who are new to this market will also be more familiar with HODL coins, based on the somewhat similar nature of project screening.
6. Conclusion
Although it originated from a typo many years ago, the influence of the term HODL on the financial market in general and the cryptocurrency market in particular is undeniable.
HODL is definitely a good choice for investors who don't want to spend a lot of time reading charts, are new to technical analysis, or simply during certain market moments.
